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Oil in Kenya: National Caution Required

Research Director, Area Studies and International Law; Head, Africa Programme

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Not long ago, whenever I went to international oil and gas conferences, sessions on East Africa filled the graveyard slot.

I and a few other analysts would sit through almost empty presentations more out of courtesy than curiosity, while all the smart money was on the Gulf of Guinea.

Not anymore. East Africa is the new oil and gas frontier, and the sessions are packed.

The latest and perhaps most significant development for Kenya came this week when President Mwai Kibaki announced a significant find by Tullow Oil in the country’s north-western Turkana region. You could feel his relief as he called it a 'major breakthrough'. Ever since independence Kenyan officials have been wondering why their geology has been less generous than others amongst recent gold, Tanzanite, and significant gas finds in Tanzania, and oil in Uganda.

Kenya has a strong agribusiness base, exporting tea, coffee, flowers and vegetables. It also enjoys a major tourism industry and Nairobi is a regional hub, providing financial and other services. If significant oil reserves are found, this could be transformative for Kenya’s economy. It will also embolden Kenya’s ambitions to become a leading regional power. This mood was summed up by a columnist in Kenya’s Business Daily who wrote, 'Kenya’s economic and diplomatic clout had largely suffered from a lack of known natural resources that are of strategic importance to the rest of the world'.

Managing the Politics

Kenya’s politicians will need to keep a close eye on this bullishness, as regional cooperation within the East African Community rather than head-on competition makes better economic sense. Kenya has already been positioning itself to develop regional oil facilities for exports of oil from Uganda and South Sudan. Work started in early March on building a huge deep-water port in Lamu, to service a pipeline across northern Kenya.

The West sees Kenya as a reliable regional anchor state, although its reputation as a stable democracy took a knocking with the surge of violence that followed the presidential elections in 2008 and threatens to re-emerge. New presidential elections are scheduled for late 2012 or 2013, and oil will additionally raise anticipation of billions of future oil dollars for the victorious.

The stakes in these elections have risen, and the capacity of Kenya’s institutions, but also of its politicians, to gracefully except defeat, will be critical. President Kibaki will not be running and has a golden opportunity to secure his legacy by ensuring credible and peaceful elections pass.

The greatest worry is that oil money might further blight an already corrupted political class. Kenya has a bad reputation of corruption, especially by its political class. A former anti-corruption tsar, John Githongo, fled the country fearing for his life in 2005. He returned to Kenya in 2008 and has set up Kenya Ni Yetu (Kenya is Ours), a campaign aimed at mobilizing ordinary people to speak up against corruption, impunity and injustice.

Avoiding the Oil Curse

If Kenya is to effectively benefit from oil, and avoid the resource curse that many other oil producers have experienced it needs to learn from the mistakes of others. The lessons are clear: strengthen independent institutions and oversight; publish all the taxes and royalties from oil; do not rush into prestige projects and extravagant consumption; and don’t neglect creating meaningful employment for Kenyans.

Kenyans need jobs, but the oil industry itself never employs enough. The key is to use any oil funds to build up a competitive economy - Kenya’s opportunity is that it already has a successful base upon which to build.